Silvercrest Metals Inc
TSX:SIL
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Silvercrest Metals Inc
Earnings Call Analysis
Q2-2024 Analysis
Silvercrest Metals Inc
SilverCrest Metals had an impressive second quarter in 2024, showcasing operational and financial strength. The company reported record revenues of $72.7 million and mine operating earnings of $41.5 million. This robust performance was supported by cash flow generation, yielding operating cash flow of $39.6 million, or $0.27 per share. Furthermore, SilverCrest demonstrated strong free cash flow of $24.3 million, translating to $0.16 per share, even after investing $15.3 million in sustaining capital.
Given their solid performance, SilverCrest has revised its 2024 guidance upward. The annual sales forecast for silver equivalent ounces sold has increased to a range of 10 million to 10.3 million ounces from the prior 9.8 million to 10.2 million ounces. Additionally, the cash cost guidance was adjusted to between $9.25 and $9.75 per ounce, and all-in sustaining costs were revised to a range of $14.90 to $15.75 per ounce. This reflects a reduction in costs below the previous estimates, showcasing operational efficiency and effective management.
While there's much to celebrate, it's important to note that currency fluctuations can pose real challenges. The recently depreciated Mexican peso contributed to unrealized foreign exchange losses of $2.8 million, impacting net earnings, which totaled $6.5 million or $0.04 per share. This demonstrates the importance of monitoring external economic factors that could affect earnings, especially given their location in Mexico.
SilverCrest's balance sheet displays commendable strength, with treasury assets increasing by 34% to $122.3 million, bolstered by a 20% increase in gold and silver bullion holdings. This growth in treasury assets illustrates a favorable market position and serves as a cushion for future investments and operations. The management is committed to maintaining this momentum, continuing to benefit from strong metal prices and strategic asset management.
In terms of operational metrics, underground mining rates increased to approximately 1,100 tonnes per day, exceeding the planned target of 1,050 tonnes per day by year-end. The Las Chispas plant also exceeded plans, averaging 1,216 tonnes per day in the quarter, contributing to the recovery of 2.7 million ounces of silver equivalent at a remarkable recovery rate of 98.4%. This operational prowess not only supports current guidance but enhances the prospect for future growth.
SilverCrest's commitment to sustainability is evident through ongoing community engagement initiatives, particularly focusing on water stewardship in the Sonora region. This program has reportedly improved water access for local farmers and ranchers, allowing them to pursue multiple planting seasons. Through these initiatives, SilverCrest not only fulfills its responsibility to the community but also enhances its reputation and long-term sustainability, aligning with investors' growing focus on corporate social responsibility.
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Good day, everyone, and welcome to the SilverCrest Metals Second Quarter 2024 Results Conference Call. [Operator Instructions] Please note this call may be recorded. I will be standing by should you need any assistance.
And it is now my pleasure to turn the floor over to CEO and Director, Mr. Eric Fier. Welcome, sir.
Thank you, operator. Good morning, and thanks, everybody, for joining. Today, we'll be providing commentary on Q2 2024 results, after which, we'll be happy to take questions. The slide deck we'll be referring to is available on our website, silvercrestmetals.com under the Investor tab. Before we get started, I'd like to direct you to the forwarding statements on Slide 2. All figures discussed this morning are in U.S. dollars unless otherwise stated. All of the ounce and per ounce references discussed will be based on silver equivalent ounces sold, unless otherwise indicated. Our silver equivalent references are based on a gold to silver ratio of 79.5: 1. On the call with me today is Rob Doyle, recently announced interim CFO. And Chris Ritchie, President; and Cliff Lafleur, Vice President of Operations.
Starting on Slide 3. Q2 was another strong quarter for us, both operationally and financially, given our strong performance in the first half of the year and to the start of H2, we have announced positive revisions to our annual sales, cash cost and all-in sustaining cost guidance. These changes were all made under the same silver equivalent assumptions as our original guidance. Silver equivalent sales of 2.6 million ounces in Q2 and 5. 2 million ounces in H1 provided us with the comfort to increase our annual sales guidance to 10 million to 10.3 million ounces from our original guidance of 9.8 million to 10.2 million ounces with cash costs and all-in sustaining costs in the first half of the year coming below the bottom end of our original guidance.
We have the confidence to revise our 2024 guidance for both. We now expect cash cost to be $9.25 to $7.75 (sic) [ $9.75 ] and all-in sustaining cost to be $14.90 to $15.75 to $15.75 per ounce. Our balance sheet continues to demonstrate strength and flexibility with both cash and bullion holdings increasing notably in the quarter.
On to Slide 4. We are now pleased to be going into H2 with continued confidence in our execution. As I mentioned, we have improved our guidance for a total silver equivalent ounces sold, cash costs and corporate all-in sustaining costs. Our exploration in sustaining capital remain unchanged. Before I pass the call to Rob to discuss our financial results in the quarter, I'd like to take a moment to officially welcome him to the team. We are thrilled to have Rob join as an interim CFO, bringing with him a wealth of experience. Welcome, Rob.
Thank you, Eric, and good morning, everyone. I am delighted to be joining such a high-quality company with an incredible asset and a talented management team. I'm very much looking forward to rolling up my sleeves in my new role. Moving to Slide 5. In the quarter, we generated record revenue of $72.7 million and record mine operating earnings of $41.5 million. Cash flow generation in the quarter was robust with operating cash flow of $39.6 million or $0.27 per share. We also recorded strong free cash flow of $24.3 million or $0.16 per share, which came after investing $15.3 million in sustaining capital. Net earnings in the quarter of $6.5 million or $0.04 per share were impacted by a weakened peso following the results of the Mexican general election.
It is important to note that we report earnings per share on a nonadjusted basis, which can result in some noise quarterly, particularly when we observed more notable exchange rate movements. The depreciation of the peso at the end of the quarter resulted in unrealized foreign exchange losses of $2.8 million and largely drove the noncash deferred tax expense of $14.3 million. This aspect of our tax is reflected in Note 18 of our financial statements, but in simple terms, reflects the change in our anticipated tax attributes over the life of the mine due to changes in the FX.
If the recent volatility in the Mexican peso persists, we would expect that these noncash mark-to-market items will continue to be a feature of future earnings, both positive and negative. Current taxes of [ $11.8 million ] were higher than the prior period as a result of the utilization of all of our Mexican tax loss carryforwards in 2023, following strong operating performance since commercial production was achieved in Q4 2022. Our net earnings for the quarter added to the retained earnings on our balance sheet, something that we are very proud of as a young company.
As students of the industry will know, retained earnings is a very rare achievement in our business. I'm now going to pass the call to Chris to speak to the treasury assets on our pristine balance sheet.
Thanks, Rob. Now on Slide 6. Treasury assets increased by 34% or $31.2 million to end the quarter at $122.3 million. We added 20% to our gold and silver bullion holdings and benefited from a $3.1 million mark-to-market increase as a result of strong metal prices in the quarter. As a result, bullion holdings grew to $24 million at the end of the quarter. Our bullion holding program continues to prove its merits with further additions expected in the second half of the year. I will now hand the call to Cliff to discuss operations at Las Chispas.
Thanks, Chris. I'm now on Slide 7. Underground mining rates increased to approximately 1,100 tonnes per day, higher than our planned exit rate at the end of the year of 1,050 tonnes per day. This increase in productivity is due to the strong collaboration of our site team with our 2 mining contractors heading into H2 2024. The Las Chispas plant averaged 1,216 tonnes per day, and it is expected that throughout will average 1,200 tonnes per day as planned through the remainder of 2024. The plant recovered 2.7 million ounces with processed grades of 765 grams per tonne silver equivalent. The plant had yet another quarterly record with silver equivalent recoveries of 98.4%.
We continue to use our stockpiles to optimize plant production and this has allowed us to continue a strong process recoveries a key driver in our consistent silver equivalent sales in the 6 quarters since declaring commercial production. Corporate all-in sustaining costs in the quarter of $16.88 per ounce increased from quarter 1 as expected due to increased production and development with 2 mining contractors on site as well as a $1 million write-down of warehouse inventory in the quarter. Our first half all-in sustaining cost of $14.89 per ounce gave us confidence to adjust our annual guidance for 2024.
I'll now pass it back to Eric to conclude the presentation.
Thanks, Cliff. On to Slide 8. Looking forward to the rest of 2024, the results of the first half of the year present a [indiscernible] well to meet our improved 2024 guidance. We remain committed to work on our exploration program at Las Chispas with drilling in the quarter, focusing on converting high potential inferred resources to indicated resource with additional focus being put on identifying new targets regionally and at Las Chispas. Subsequent to the end of the quarter, we released our second annual ESG report. We are proud to have a very common sense approach to sustainability.
As someone who has spent the past 20 years building relationships in the communities around Las Chispas, ESG is more than data. It's finding ways to truly make a difference, and it's done through constant engagement and collaboration with local and government stakeholders. Our local communities rely heavily on agriculture and ranching for their livelihoods and are directly impacted by water scarcities in Sonora. In the second year of our water stewardship plan, local farmers and ranchers saw an significant improvement in water access reliability. This has allowed some community members to establish a second planting seasons, boosting income potential and developing agricultural resilience. As we continue to execute on this plan, we look to further expand the reach and impact of our programs.
That wraps up our formal commentary for today. Operator, please open the line for questions.
[Operator Instructions] And gentlemen, we have no signal from our phone audience.
Thanks, everyone, for attending our results call. Have a good day.
Ladies and gentlemen, this does conclude today's teleconference, and we do thank you all for your participation. You may now disconnect your lines.